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Friday, March 18, 2016

I recall leaving high school hearing of a friend who had taken a loan at 20% from the mob. That was a head-shaker, poor guy, his life was over before it started. The only thing that has changed is how many people who take 20% loans.

These statements were allegedly misleading because the company failed to disclose that: i) it had an unsustainable business model dependent on its ability to issue loans with usurious rates; ii) its loan investors would not be able to enforce the high rates because they were illegal; iii) without the usurious rates, the loans generated through LendingClub's marketplace would not be attractive to investors because they had a high credit risk; and iv) a substantial portion of LendingClub's loans were issued with rates in excess of those allowed by applicable state usury laws.

The problem is not that some usury rackets are unsustainable, the problem is all loans of any amount at any interest at any rate for any duration cause damage, more or less. But they all always cause damage.

Ask any financial watcher, and they all lay today's problems at the FED and interest rates. Just so. They argue there is a "just right" interest rate, which cannot be known, but can be "discovered" by the market.

Problem is, in a free market, only the delusional get involved in loans at interest, and there is little credit available to promote delusion among the masses. Further, in a free market, there is no enforcing interest, just as gambling debts are not enforceable in our society. Credit at usury is enforceable in our capitalist society, and it is an existential problem, for both the 99% and the 1%. Gambling debts are a negligible problem in our society. There is the difference.

Just eliminate enforcement of interest on loans, and watch the problem go away.

There is always a desire for EZ Credit loans at interest, but never a need. The free market can and does provide finance options for the necessary and the sufficient.